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Credit rating agencies affirm BPA is stable
4/11/2014 12:00 AM
Sale of BPA-backed Energy Northwest bonds is Positive; Bond ratings agencies agree, outlook for BPA is stable
The nation’s three major investment credit ratings agencies have affirmed BPA is on solid financial footing. During the week of March 24, Fitch rated BPA-backed bonds AA with a stable outlook. Moody’s Investors Service also called BPA’s financial outlook stable with an Aa1 rating. Finally, Standard & Poor’s gave the third stable outlook, assigning BPA-backed financial instruments a AA- rating. The ratings are unchanged from the last review.
BPA requests a review of its credit rating each time BPA-backed bonds are offered. In the absence of an active offering in the bond market, the rating agencies will usually refresh BPA’s ratings once per year.
On April 8, Energy Northwest and BPA went to the capital markets with a $634 million bond sale. These bonds will finance capital improvements at Energy Northwest’s Columbia Generating Station nuclear plant, restructure Energy Northwest’s debt portfolio to align it more closely with Columbia’s asset life, and glean refinancing savings of about $38.6 million across fiscal years 2014 through 2024.
Javier Fernandez, BPA’s acting treasurer, was buoyed by the market’s response.
“The April 8 bond pricing results are a direct consequence of BPA’s financial strength, as evidenced by our credit ratings and active investor outreach,” says Fernandez. “I am thrilled by the outstanding pricing results, which are a testament to our commitment to delivering the highest value to our ratepayers.”
In reviewing the BPA-supported Energy Northwest bonds, the rating agencies confirmed their prior ratings and noted several BPA strengths that should inspire investor confidence. The fact that BPA is a federal entity with the support of the U.S. government lends significant credibility to BPA operations. This government support is explicit, as evidenced by BPA’s $7.7 billion Treasury borrowing authority and implicit due to BPA’s high-profile role as a stable entity in the Pacific Northwest and its position within the Department of Energy. The agencies also cited BPA’s competitive rates and long-term power contracts that will provide a revenue stream through 2028 as factors contributing to the across-the-board stable outlook.
While a stable rating is good, BPA is always looking for opportunities to improve. Higher ratings would benefit BPA’s ratepayers by lowering the costs, such as interest on debt, that are tied to bond ratings. When BPA’s cost of borrowing money is lower, fewer funds must be recovered through rates to repay it.
The ratings agencies noted that BPA faces several challenges. Some, such as the effect of hydro conditions on financial performance, are not within BPA’s control, but are mitigated in risk analysis and planning processes. But other challenges are within BPA’s control, such as addressing BPA’s financial reserves position, its significant future capital needs in view of limited U.S. Treasury borrowing authority, and its overall debt structure and management. To address these issues, BPA is planning a series of public discussions on financial reserves and debt management later this summer as part of BPA’s Integrated Program Review. BPA continues to develop access-to-capital and debt management strategies to secure adequate and low-cost access to capital in the long term.
Preserving BPA’s current high bond rating from all three credit ratings agencies is a key agency target for fiscal year 2014. The good news from Fitch, Moody’s and Standard & Poor’s means BPA will meet that target. With continued strong financial performance, risk mitigation, regional and ratepayer support, BPA will be well positioned to maintain or improve those ratings in the future.
Additional information for investors can be found
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